Goldman Sachs has upgraded its view on the euro, projecting further appreciation in the months ahead despite EUR/USD already sitting near the bank's three-month target of 1.18. The bank emphasized that the currency could continue to gain value even as traditional valuation arguments have weakened and the euro remains "far from pro-cyclical."
In its analysis, Goldman noted the tight, persistent correlation across currency markets and flagged how EUR/USD has moved in close step with the broader Dollar index. Rather than being the primary driver of moves - as the euro was in early 2025 - the bank expects the euro to "ride the tailwinds of broad Dollar depreciation" going forward.
Goldman also drew attention to euro-specific influences that could reinforce the currency. One such factor is potential shifts in FX hedging behavior among asset managers following weaker US equity performance; the bank suggested these changes to hedging practices could have a notable impact on the euro area.
The firm pointed to supportive macroeconomic signals from Europe, citing "forward-looking components like new manufacturing orders around the turn of the year" as constructive indicators. Goldman’s interpretation is that these improvements in forward-looking data may bolster the euro by strengthening the underlying economic picture.
Policy discussions were also referenced as a conditional source of further support. Goldman observed that talks on deeper European integration and potential spending initiatives - examples include joint issuance or another exemption to Germany’s debt brake - remain at an early stage. If such measures were implemented, the bank noted, they could benefit the euro and possibly have an even greater effect on nearby economies.
Overall, Goldman’s revised stance positions the euro to benefit from broad dollar weakness while acknowledging that the currency’s role in driving market moves has shifted since early 2025. The bank highlights several euro-area specific factors that could add incremental support, but it also notes that many policy conversations are preliminary and outcomes are uncertain.
Key points
- Goldman raised its euro outlook and expects additional upside despite EUR/USD trading near its 1.18 three-month target - impact: currency markets and FX desks.
- The bank sees EUR/USD moving in tandem with the broader Dollar index and anticipates the euro will benefit from broad dollar depreciation rather than lead it - impact: cross-asset correlations and global FX flows.
- Euro-area fundamentals, including forward-looking indicators such as new manufacturing orders, and early-stage policy talks on integration or joint fiscal steps could provide further support - impact: euro-area sovereign markets and asset managers.
Risks and uncertainties
- Valuation-based arguments for euro appreciation have weakened, which could limit upside if other supports do not materialize - affects: currency markets and exporters/importers in the euro area.
- Policy proposals like joint issuance or changes to Germany’s debt brake are still in early discussions and may not be implemented, leaving potential benefits uncertain - affects: sovereign debt markets and regional fiscal dynamics.
- Goldman’s view relies in part on broad dollar depreciation; if the dollar does not weaken as expected, the euro may not experience the projected gains - affects: global FX trading strategies and asset managers.